Ratio analysis is one of the oldest methods of financial statements analysis. It was developed by banks and other lenders...
Read moreRatio, as the name suggests, is nothing more than one number divided by the other. However, they become useful when...
Read moreAs we have seen earlier that there is a wide variety of financial ratios available. They fall into many categories...
Read moreRatio analysis, without a doubt, is amongst the most powerful tools of financial analysis. Any investor, who wants to be...
Read moreCapital structure ratios are very important to analyze the financial statements of any company for the following reasons: Same Business...
Read moreThe debt to equity ratio is the most important of all capital adequacy ratios. It is seen by investors and...
Read moreThe debt ratio is the second most important ratio when it comes to gauging the capital structure and solvency an...
Read moreFormula Equity to Fixed Assets Ratio = Equity / Total Fixed Assets Equity includes the retained earnings Total Fixed assets...
Read moreThe proprietary ratio is not amongst the commonly used ratios. Very few analysts prescribe its usage. This is because in...
Read moreThe interest coverage ratio is a number that has a lot of importance for the creditors of the firm. This...
Read moreA high debt equity ratio makes the company financed by debt more than by equity. Therefore there are fixed interest...
Read moreThe degree of operating leverage of a company is very important from an investor’s standpoint. Although it shows the riskiness...
Read moreMost firms use both operating leverage and capital leverage to some extent. In today’s business world it is almost impossible...
Read moreOnce upon a time, investors and analysts used to believe in ratios that have been calculated based on the earnings...
Read moreFormula Cash Flow to Debt Ratio = Operating Cash Flow/Total Debt Meaning The cash flow to debt ratio tells investors...
Read moreThe free cash flow to operating cash flow ratio is different from other ratios. It is different in the sense...
Read moreFormula The formula for this ratio can be easily judged by its name: Operating Cash Flow to Sales Ratio =...
Read moreMost investors do not invest directly in the company i.e. they are not promoters of the company. Rather they invest...
Read moreThe price to earnings ratio is the most fundamental of all market related ratios. It has been used for decades...
Read moreThe Price Earnings Growth (PEG) Ratio is one of the first variations that were made to the Price to Earnings...
Read moreFormula Price to Book Value = Current Market Price / Total Assets – Intangible Assets The value of assets is...
Read more“Cash is King” say the bigwigs on Wall Street. That is why the valuation of shares is done on the...
Read moreFormula Price to Sales Ratio = Current Market Price / Reported Sales Revenue Many companies state their revenue after removing...
Read moreInvestors can be classified into types. The two predominant types are growth oriented investors and value oriented investors. Growth oriented...
Read moreThe put call ratio is the only financial ratio that does not compare the current market price to any financial...
Read moreLiquidity can be defined as the ability of a firm to make good its short term obligations. Most businesses function...
Read moreThe current ratio is the most popularly used metric to gauge the short term solvency of a company. This article...
Read moreThe quick ratio is a variation of the current ratio. However, a quick ratio is considered by many to be...
Read moreThe cash ratio is limited in its usefulness to investors and financial analysts. It is the least popular of the...
Read moreTraditional financial analysts would consider a negative working capital i.e. having more current liabilities than current assets, a sign of...
Read moreTurnover ratios (also known as efficiency ratios) are a very important class of ratios. These ratios are not only used...
Read moreAccounts receivable are a very important part of the current assets of any business. Like inventory, accounts receivable are considered...
Read moreJust like accounts receivable turnover ratio show the financing that the firm is providing to its buyers interest free, the...
Read moreIt is a myth that financial ratios are to be used only by investors and analysts in deriving a fair...
Read moreFixed assets i.e. property, plant and equipment represent the single largest investment any company makes in its operations. It is...
Read moreA company is said to be more efficient when it keeps the least inventory on hand to make the sales...
Read moreFormula Working Capital to Sales Ratio = Working Capital / Sales Meaning Stating the working capital as an absolute figure...
Read moreThe ultimate aim of all business is to generate profit. That is what the investors invest for, management plans for...
Read moreCommon size statements are not financial ratios. Rather they are a way of presenting financial statements that makes them more...
Read moreThe untrained investor uses profit and profit margin interchangeably. This is not technically correct. The difference may be minor but...
Read moreAnother metric that is widely used by investors to gauge the profitability of a company is Return on Assets (ROA)....
Read moreReturn on Equity (ROE) is probably the most important number in the financial universe. Every company is driven by profit...
Read moreReturn on Invested Capital (ROIC) is another popular metric that is used widely in financial analysis. The reason for its...
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